Question

FIFO Perpetual Inventory

The beginning inventory of merchandise at Dunne Co. and data on purchases and sales for a three-month period ending June 30 are as follows:

Date		Transaction	Number of Units		Per Unit		Total
Apr. 3		Inventory	42		$525		$22,050
8		Purchase	84		630		52,920
11		Sale	56		1,750		98,000
30		Sale	35		1,750		61,250
May 8		Purchase	70		700		49,000
10		Sale	42		1,750		73,500
19		Sale	21		1,750		36,750
28		Purchase	70		770		53,900
June 5		Sale	42		1,840		77,280
16		Sale	56		1,840		103,040
21		Purchase	126		840		105,840
28		Sale	63		1,840		115,920

Required:

1. Record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory record similar to the one illustrated in Exhibit 3, using the first-in, first-out method. Under FIFO, if units are in inventory at two different costs, enter the units with the LOWER unit cost first in the Cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column.

Dunne Co. Schedule of Cost of Merchandise Sold FIFO Method For the three months ended May 31, 2016
	Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Apr. 3								$	$
Apr. 8		$	$
Apr. 11					$	$
Apr. 30
May 8
May 10
May 19
May 28
June 5
June 16
June 21
June 28
June 30	Balances					$			$

2. Determine the total sales and the total cost of merchandise sold for the period. Journalize the entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.

Record sale
Record cost

3. Determine the gross profit from sales for the period.
$

4. Determine the ending inventory cost as of June 30.
$

5. Based upon the preceding data, would you expect the inventory using the last-in, first-out method to be higher or lower?

Answer 1

	Dunne Co
	Schedule of Cost of Merchandise Sold
	FIFO Method
	For the three months ended May 31, 2016
		Purchases			Cost of Merchandise Sold			Inventory			UnitSales price	Total Sales amount
	Date	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
	Apr. 3							42	$525	$22,050
	Apr. 8	84	$630	$52,920				42	$525	$22,050
								84	$      630	$      52,920
	Apr. 11				42	$525	$22,050	70	$      630	$      44,100	$1,750	$73,500
					14	$      630	$8,820				$1,750	$24,500
	Apr. 30				35	$      630	$22,050	35	$      630	$      22,050	$1,750	$61,250
	May 8	70	$700	$49,000				35	$      630	$      22,050
								70	$      700	$      49,000
	10-May				35	$      630	$     22,050	63	$      700	$      44,100	$1,750	$61,250
					7	$      700	$      4,900				$1,750	$12,250
	May 19				21	$      700	$     14,700	42	$      700	$      29,400	$1,750	$36,750
	28-May	70	$770	$53,900				42	$      700	$      29,400
								70	$770	$53,900
	5-Jun				42	$      700	$     29,400	70	$      770	$      53,900	$1,840	$77,280
	June 16				56	$      770	$     43,120	14	$      770	$      10,780	$1,840	$103,040
	June 21	126	$840	$105,840				14	$      770	$      10,780
								126	$      840	$     105,840
	June 28				14	$      770	$     10,780	77	$      840	$      64,680	$1,840	$25,760
					49	$      840	$     41,160				$1,840	$90,160
	30-Jun	Balances						77	$      840	$      64,680	TOTAL	$565,740
			Total	$261,660		TOTAL	$219,030
											Total sales	$565,740
											Total cost of goods sold	$219,030
				JOURNAL ENTRY
				Account Title	Debit	Credit
				Accounts Receivable	$565,740
				Sales		$565,740
				Cost of goods sold	$219,030
				Inventory		$219,030
				CALCULATION OF GROSS PROFIT
				Sales	$565,740
				Cost of goods sold	$        219,030
				GROSS PROFIT	$346,710
				ENDING INVENTORY COST
				Ending Inventory	$          64,680
			5	Based on the data above, the unit purchase price has consistently increased over time
				Unit price of beginning inventory was $525
				First purchase was at $630
				The last pirchase at $840
				In Last in First out method, the last purchased inventorty is sold out first
				Hence ending inventory will be initial purchases at lower price
				Hence ending inventory will be lowert
				Cost of goods sold will be higher
				Consequently, Gross profit will be lower